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Two Opposing Views of the Future of Oil Prices

17th July 2017

There are two main opposing views on which way the oil market is likely to go in the near future, each one backed by reasonable analysis and sound thought. Only time will tell but, as ever, we can expect the unexpected.

VIEWPOINT 1: OIL WILL GO DOWN

Oil will plummet unless there is a dramatic cut in output, according to Goldman Sachs. Their belief is that oil prices could fall below $40.00 per barrel unless there are clear reasons to stimulate more buying. Goldman Sachs had a forecast of $55.00 per barrel for its three month price target on US crude, but that forecast was recently reduced to $47.50 per barrel. Goldman Sachs are not alone in their view; BNP Paribas and many other investment banks and analysts have cut their crude oil price forecasts going forward.

US oil production has increased more than 10% since mid 2016, a trend that is reinforcing the downward projections. Drilling activity on the US is also a concerning factor with the nation's rig count rising for 24 of the last 25 weeks. Moreover, growing production in Libya and Nigeria is starting to be a concern to other OPEC members (who have recently agreed to remove 1.8 million barrels per day from the market until March 2018), and may be the stimulus the market needs to start driving prices down (although pressure is mounting on the two nations to curb their production).

VIEWPOINT 2: OIL WILL GO UP

On the other hand, oil prices could rise by more than 35% before the end of the year, according to Citigroup. According to a Citigroup senior analyst, who predicted a bear market in crude oil when prices reached $100.00 per barrel, prices could soon correct upwards and reach $60.00 per barrel.

Global oil inventories began to shrink during the first quarter of this year, and the Citigroup analyst predicts this trend will continue at a faster pace throughout the remainder of 2017. As global inventories decline, demand is rising, with global demand reaching a record level of 97.3 million barrels per day this year compared to 96 million barrels per day in 2016. And we all know that shrinking inventories and increasing demand can only mean one thing: rising prices.

Only time will tell which of these predictions will prove to be correct, but one thing is certain: that the uncertainty will continue for the foreseeable future.